3 Steps to Cut Down Your Debt

This rate is alarming!

The rate of “severe derogatory” balances from student loan debt increased 36 percent from the same time a year ago, according to the latest Equifax National Consumer Credit Trends Report. This news comes on the heels of a Bankrate.com report which revealed that nearly a quarter of U.S. citizens have more credit card debt than savings. While surveying the realm of personal finance, it doesn’t take long to get the common thread: debt is an enormous problem for millions of Americans.

Sound strategies, extensive research and a diversified plan for investing don’t mean much if you’re drowning in debt. Whether it’s through credit cards, student loans or cash advances, debt reigns over millions of Americans, preventing them from building a solid investing portfolio. Before you head into the black, you’ve got to get out of the red. Shedding debt requires discipline, commitment and effective strategies.

Make a Budget

It’s the first step toward financial freedom, but millions of Americans continue to collect and spend revenue without a budget. According to Bankrate.com, 40 percent of surveyed citizens said they didn’t follow monthly spending. Any serious attempt to whittle down debt requires a course of action. Try throwing random sums of money at your debt and you’ll be frustrated by your absence of improvement. A budget enables you to schedule when and how you’ll stop debt, and takes the guess work out of spending. Start with your entire household income and subtract how much you’ll spend on savings, bills, groceries, clothing and entertainment. If you have money left over, send it toward outstanding debt.

Treat as a general guideline and you’ll remain floating on a pile of debt. Stick to it and you’ll drift closer and closer toward financial stability.

Cut Back

Unfortunately, drafting a statement won’t make debt magically disappear. Rather, it gives a realistic view at how you can crawl out from under credit cards, students loans and other sums. The hard part is finding debt payments within that budget. A tip: starting small is better. Take your lunch to work a couple of days a week instead of eating out, hold off on that new stereo system or spend a candle-lit date night at home. On a long enough timeline, these subtle cutbacks can cut into debt.

Maintain Momentum

Unless you win the lottery, inherit a fortune or otherwise come across a large sum of money, reducing debt is a gradual process. Maintain momentum as you pay off day by creating frugal habits. According to Ed Young, pastor of Fellowship church in Texas, creating powerful financial habits is easier said than done. “In today’s world, we think debt is a way of life,” Pastor Young says on his website. It may be a part of our culture, but maintaining debt isn’t a sustainable way of life. Avoid borrowing more money at all costs. With discipline and determination, you can make debt a thing of the past.